14.4 Ocean Marine Coverages (hull, cargo, freight, P&I)

The Four Ocean Marine Interests

Ocean marine is the oldest line of insurance and remains largely unregulated as to form and rate, relying on negotiated wordings, often built around the American Institute Hull Clauses and London market clauses. The exam organizes ocean marine around four insurable interests, each a separate coverage that can be insured alone or in combination:

Hull coverage protects the physical vessel and usually includes a collision (Running Down) clause that pays liability for damage the insured vessel does to another vessel. Cargo can be written per voyage or as an open cargo policy that automatically covers all shipments on a reporting basis. Freight protects the money a carrier expects to earn — lost if cargo never arrives. P&I fills the third-party liability gaps left by the hull collision clause: bodily injury to crew/passengers, illness, pollution, cargo liability, and wreck removal.

A key exam nuance is the relationship between the hull collision (Running Down) clause and P&I. The hull collision clause typically pays only three-fourths (3/4) of the liability the insured vessel incurs for striking another vessel; the remaining one-fourth (1/4) collision liability falls to the P&I cover. P&I is usually written through mutual Protection & Indemnity Clubs, which assess members rather than charge fixed premiums, so a bad loss year can trigger supplementary calls.

Ocean Marine Clauses, Perils, and Implied Warranties

Ocean marine introduces vocabulary not seen elsewhere on the P&C exam:

• Perils of the Sea: extraordinary actions of wind and water (storms, sinking, stranding, collision) — not ordinary wear or normal wave action.
• General Average: when cargo or equipment is voluntarily sacrificed for the common safety of the voyage, all parties (hull, cargo, freight) share the loss proportionally. Contrast with Particular Average, a partial loss borne solely by the owner of the damaged property.
• Sue and Labor clause: obligates the insured to take reasonable steps to minimize loss; the insurer reimburses those expenses.
• Free of Particular Average (FPA): excludes partial losses below a threshold; With Average (WA) covers partial losses.
• Inchmaree clause: extends hull to losses from latent defects, boiler bursts, and crew negligence.

Implied warranties are unique and heavily tested. Even if unwritten, the insured warrants: seaworthiness of the vessel, legality of the venture, and no deviation from the agreed voyage/route. Breach of an implied warranty can void coverage — a favorite exam trap.

Worked General Average and Coinsurance-Style Numerics

General Average contribution example: During a storm, a captain jettisons $200,000 of one shipper's cargo to save the vessel. The post-sacrifice values are: hull $2,000,000, remaining cargo $1,500,000, freight $300,000 — total saved interests $3,800,000, plus the $200,000 sacrificed = a contributory value base of $4,000,000. The $200,000 loss is spread proportionally:

• Hull share: $2,000,000 / $4,000,000 = 50% → $100,000
• Remaining cargo share: $1,500,000 / $4,000,000 = 37.5% → $75,000
• Freight share: $300,000 / $4,000,000 = 7.5% → $15,000
• Sacrificed cargo owner bears its own share: $200,000 / $4,000,000 = 5% → $10,000

Each interest's ocean marine policy pays its general average contribution. The sacrificing shipper is thus made nearly whole because the other interests contribute $190,000 of the $200,000.

Cargo valuation note: ocean cargo is commonly insured on a valued basis at invoice cost plus freight plus insurance plus an advance (typically 10%) for anticipated profit — e.g., $100,000 invoice insured at $110,000. Knowing ocean marine is a valued (agreed) contract, not an indemnity-to-ACV contract, distinguishes it from most property forms on the exam.

Implied Warranties and the General Average Rule

Ocean marine policies impose implied warranties the insured must satisfy even though they are unwritten. Breach can void coverage, which is why the exam tests them as a list.

• Seaworthiness - the vessel is fit for the voyage at its start.
• No deviation - the ship follows the customary route without unjustified departure.
• Legality - the venture is a lawful one.

The four insurable interests are hull (the vessel), cargo (the goods), freight (the shipping revenue), and protection & indemnity (P&I) (third-party liability, the marine equivalent of liability insurance).

General average is the signature ocean-marine concept: when cargo or equipment is voluntarily sacrificed to save the whole venture (jettisoning cargo to refloat a grounded ship), all parties share the loss proportionally to the value they had at risk.

Worked general average: a venture worth $10,000,000 total sacrifices $500,000 of one shipper's cargo to save the rest. A cargo owner whose goods represent 20% of the saved value contributes 20% x $500,000 = $100,000 toward the sacrificed cargo, illustrating proportional sharing.

Particular Average vs. General Average

Ocean marine distinguishes two kinds of loss, and the exam tests the contrast.

Exam Trap: A particular average loss (seawater damages one shipper's crate) falls only on that owner, while a general average sacrifice (jettisoning cargo to refloat the ship) is shared by every party in proportion to the value they had at risk. Memorize 'particular = personal/partial; general = shared sacrifice' to answer these reliably.